| Marketing: Creating and Capturing Customer Value 13

Chapter 1 | Marketing: Creating and Capturing Customer Value 13

relative to those of competing offers. Importantly, customers often do not judge values and costs “accurately” or “objectively.” They act on perceived value.

To some consumers, value might mean sensible products at affordable prices, especially in the aftermath of recent recession. To other consumers, however, value might mean pay- ing more to get more. For example, despite the challenging economic environment, GE re- cently introduced its new Profile washer-and-dryer set, which retails for more than $2,500 (more than double the cost of a standard washer-and-dryer set). Profile ads feature stylish machines in eye-catching colors, such as cherry red. But the ads also focus on down-to-earth practicality. They position the Profile line as a revolutionary new “clothes care system,” with technology that allocates the optimal amount of soap and water per load and saves money by being gentle on clothes, extending garment life. Are Profile washers and dryers worth the much higher price compared to less expensive appliances? It’s all a matter of personal value perceptions. To many consumers, the answer is no. But to the target segment of style- conscious, affluent buyers, the answer is yes. 10

Customer satisfaction

Customer Satisfaction. Customer satisfaction depends on the product’s perceived per-

The extent to which a product’s perceived formance relative to a buyer’s expectations. If the product’s performance falls short of expec- performance matches a buyer’s

tations, the customer is dissatisfied. If performance matches expectations, the customer is expectations.

satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted. Outstanding marketing companies go out of their way to keep important customers satisfied. Most studies show that higher levels of customer satisfaction lead to greater cus- tomer loyalty, which in turn results in better company performance. Smart companies aim to delight customers by promising only what they can deliver and then delivering more than they promise. Delighted customers not only make repeat purchases but also become willing marketing partners and “customer evangelists” who spread the word about their good experiences to others (see Real Marketing 1.1). 11

For companies interested in delighting customers, exceptional value and service become part of the overall company culture. For example, year after year, Ritz-Carlton ranks at or near the top of the hospitality industry in terms of customer satisfaction.

Its passion for satisfying customers is summed up in the company’s credo, which promises that its luxury hotels will deliver a truly memorable experience—one that “enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.” 12

Check into any Ritz-Carlton hotel around the world, and you’ll be amazed by the company’s fervent dedication to anticipating and meeting even your slightest need. Without ever asking, they seem to know that you’re allergic to peanuts and want a king-size bed, a nonallergenic pillow, the blinds open when you arrive, and breakfast with decaffeinated coffee in your room. Each day, hotel staffers—from those at the front desk to those in maintenance and housekeeping—discreetly observe and record even the smallest guest preferences. Then, every morning, each hotel reviews the files of all new arrivals who have previously stayed at a Ritz-Carlton and prepares a list of suggested extra touches that might delight each guest.

Once they identify a special customer need, Ritz-Carlton employees go to legendary extremes to meet it. For example, to serve the needs of a guest with food allergies, a Ritz-Carlton chef in Bali located special eggs and milk in a small grocery store in another country and had them delivered to the hotel. In another case, when the hotel’s laundry service failed to remove a stain on a guest’s suit before the guest departed, the hotel manager traveled to the guest’s house and personally delivered a reimbursement check for the cost of the suit. According to one Ritz-Carlton manager, if the chain gets hold

Customer satisfaction: Ritz-Carlton’s passion for

of a picture of a guest’s pet, it will make a copy, have it framed, and display

satisfying customers is summed up in its Credo,

it in the guest’s room in whatever Ritz-Carlton the guest visits. As a result

which promises a truly memorable experience— one that “enlivens the senses, instills well-being,

of such customer service heroics, an amazing 95 percent of departing guests

and fulfills even the unexpressed wishes and

report that their stay has been a truly memorable experience. More than

needs of our guests.”

90 percent of Ritz-Carlton’s delighted customers return.

14 Part One | Defining Marketing and the Marketing Process

Real Marketing 1.1

In-N-Out Burger:

The Power of Customer Delight

In-N-Out Burger opened its first restaurant in Baldwin Park, California, in 1948. It was a sim- ple affair, with two drive-through lanes, a walk- up window, outdoor seating, and a menu that boasted only burgers, shakes, fries, and soft drinks. That was a pretty standard format for the time. In fact, another California burger stand fitting about the same description was opened that same year just 45 minutes away by the McDonald brothers. Today, however, In-N-Out is pretty much the exact opposite of McDonald’s. Whereas McDonald’s now operates more than 32,000 stores worldwide and pulls in more than $79 billion in annual system-wide sales, In-N-Out has less than 250 stores in four states and about $400 million in annual sales.

But In-N-Out Burger never wanted to be another McDonald’s. And despite its smaller size—or perhaps because of it—In-N-Out’s customers like the regional chain just the way it is. When it comes to customer satisfaction— make that customer delight—In-N-Out beats McDonald’s hands down. It regularly posts the highest customer satisfaction scores of any fast-food restaurant in its market area. Just about anyone who’s been to In-N-Out thinks it makes the best burger they’ve ever had.

In-N-Out has earned an almost cultlike fol- lowing by doing something unthinkable: not changing. From the start, the chain has focused tenaciously on customer well-being. Its founding philosophy is as strongly held today as it was when the first In-N-Out Burger opened its doors: “Give customers the freshest, highest quality foods you can buy and provide them with friendly service in a sparkling clean environment.”

Unlike McDonald’s or Burger King, which introduce a seemingly unending stream of new menu items, In-N-Out’s simple menu never changes. Instead, In-N-Out still focuses on what it does well: making really good ham- burgers, really good fries, and really good shakes—that’s it. The burgers are made from 100 percent pure, fresh beef with no additives, fillers, or preservatives. Potatoes and other fresh vegetables are hand cut daily at every restaurant, and shakes are made from—yes— real ice cream. In an industry increasingly en-

amored with technologies like cryogenically frozen ingredients and off-site food prepara- tion, you won’t find a single freezer, heat lamp, or microwave oven at an In-N-Out. Every meal is custom-made with fresh ingredients. “We serve every customer, one burger at a time,” says one restaurant manager.

Although the menu might seem limited, In-N-Out employees will gladly customize a burger to each customer’s tastes. In fact, over the years, a “secret menu” has emerged for customers who know the right code words (which aren’t advertised or posted on the menu board). So a customer in the know might order a “Double-Double Animal Style” (double burger and double cheese, with pick- les, grilled onions, extra spread, and fried mus- tard). Ordering a 4X4 gets you four beef patties and four slices of cheese, and a “grilled cheese” is an In-N-Out cheeseburger without the meat. Knowing the secret menu makes regulars feel even more special.

It’s not just In-N-Out’s food that pleases customers but also its friendly and well-trained employees. In-N-Out treats its employees very well. It pays new part-time staff $10 an hour to start and gives them regular pay raises. Part- timers also get paid vacations. General man- agers make at least $100,000 a year plus bonuses and a full-benefit pack- age that rivals anything in the corporate world. Managers who meet goals are sent on lavish trips with their spouses, often to Europe in first-class seats. Managers are also pro- moted from within—80 per- cent of In-N-Out managers started at the very bottom. As

a result, In-N-Out has one of the lowest turnover rates in an industry famous for high turnover.

Happy, motivated em- ployees help to create loyal, satisfied customers. In fact, words like “loyal” and “satis- fied” don’t do justice to how

customers feel about In-N-Out Burger. “De- lighted” or even “fanatically loyal” might say it better. The restaurant chain has developed an unparalleled cult following. When a new In-N- Out first opens, the line of cars often stretches out a mile or more, and people stand in line for an hour to get a burger, fries, and a shake. Fans have been known to camp overnight to be first in line. When the first Arizona store opened in Scottsdale, people waited in line for as long as four hours while news helicopters buzzed above the parking lot.

Ardent fans willingly go out of their way to satisfy an In-N-Out Burger craving. Jeff Rose,

a financial planner from Carbondale, Illinois, al- ways stops at In-N-Out first when he visits his mother in Las Vegas. “You have to pass it when you drive to her house,” he says in his own de- fense. But how does he explain that he once paid an extra $40 in cab fare to visit an In-N- Out on the way to the San Diego airport?

In-N-Out doesn’t spend much on advertising—it doesn’t have to. Other than a small promotional budget for local billboards and some radio ads, when it comes to getting the word out, In-N-Out lets its customers do its heavy lifting. Loyal customers are true apostles for the brand. They proudly wear In-N-Out T-shirts and slap In-N-Out bumper stickers on their cars. Rabid regulars drag a constant stream of new devotees into In-N-Out restaurants, an act often referred to as “the conversion.” They can’t wait to pass along the secret menu codes and share the sublime pleasures of diving into a 4X4 Animal Style. “When you tell someone else what ‘animal style’ means,” says an analyst, “you feel like you’re passing on a secret hand- shake. People really get into the whole thing.”

In-N-Out Burger delights customers by focusing on friendly service and what it does well: making really good hamburgers, really good fries, and really good shakes— that’s it.